Report of the Directors to the Stockholders
in the Memphis & Charleston Railroad Co.

President's Report

The President and Directors
herewith submit to the Stockholders their Eleventh Annual Report, as
required by the charter and by-laws of your Company.

The year just closed has been a most extraordinary one,
having for two-thirds of its duration been disturbed by the most
extraordinary political convulsion ever known on this continent, and
finally resulting in civil war on a gigantic scale, disturbing and
totally changing the entire character of the trade and commerce of the
country, and destroying, in many instances, the principal elements of
every material interest of the country, and entirely changing the
nature and character of your business. All trade and travel to the
Northern States was entirely cut off early in the present year; the
blockade of Southern ports soon followed; next came the blockade of
the rivers and railroads on your northern border, leaving you
dependent alone on local trade and travel for support. But amidst all
these revolutions of society, government and trade, it has shown that
the property you have in this road is one of a most permanent,
reliable and profitable character; and it is most gratifying for the
Board to be able to present to you the result of the last year's
operations of your road, as shown by the reports in detail of W. J.
Ross, Esq., your General Superintendent, and M. B. Prichard, your
Chief Engineer. Your are referred to the reports of these gentlemen in
their respective departments for the details of the operations of the
road for the past year.

From these reports it will be
found that the receipts and expenditures have been as follows:

Receipts from Passengers

1,022,595.48

Receipts from Freight

729,885.93

Receipts from Mails

54,064.58

Receipts from Express

26,296.94

Receipts from Rents, Tolls and Privileges

8,279.67

Total gross earnings

$1,841,122.60

Total Expenses

793,735.78

Net earnings

$1,047,386.82

The above statement shows an aggregate gross
increase over the previous year of

$206,025.93

The increase in net earnings

173,790.15

Increase in passengers

47,336.15

Increase in freight

147,312.67

Increase in express

8,858.56

Decrease in mails

1,110.42

Increase in rents, tolls and privileges

3,628.97

Decrease in total number cotton bales carried

37,052 bales

Decrease in number carried to Memphis

49,466 bales

The entire cost of your road, including equipment and
every thing incident to the building of the main road and branches,
two hundred and ninety-one miles in length, as per the Chief
Engineer's report, has been $7,016,625.03, or $24,112.11 per mile for
construction and equipment.

The net receipts are equal to 14 3/4 per cent. on the
cost of the entire road and equipment.

The operating expenses have been 43 11/100 per cent. of
the gross earnings.

Leaving net earnings 56 89/100 per cent. of gross
receipts.

The net receipts of road being $1,047,386.82, deduct
interest paid on funded and floating debt, $181,157.39, you have left,
after paying interest on all borrowed capital, $865,229.43, or over
twenty-three per cent. on your entire stock.

The expenses will bear favorable comparison with the best
operated roads here or elsewhere, while an examination of the road-way
and machinery will satisfy all experienced men that the low operating
expenses has not been obtained at the expense of either -- the main
object at all times having been to keep the roadbed and machinery at
least fully up to its original value and to gradually improve their
condition.

By reference to tabular statement A you will find that
there has been expended in the last year, chargeable to construction
and equipment, $271,977.86; of this sum $117,923.35 was for new
locomotives and new cars to meet the growing wants of your business,
and $154,054.51 for improvements in permanent road-way, buildings,
bridges, etc., to take the place of temporary structures, about worn
out. In all cases, first deducting the cost of temporary structure
from new permanent work, only charging remainder to construction. By
reference to the Chief Engineer's report you will find, in minute
detail, the character of structure and full description of every
expenditure, as well as very full details of the condition of you r
road, with a complete list of the property owned by the company,
representing the entire outlay. From this report the Stockholder will
see that the expenditures in this department have greatly contributed
to the permanency, safety and economy of operating your road, and
secured you almost entirely from the dangers of washing away portions
of your roadbed, by the rapid streams over which your road crosses --
heretofore many of them being crossed on trestles -- but now renewed
by permanent stone-pier and iron bridges, rendering it much more
exempt from casualties than heretofore, and enabling your trains to be
run with much greater regularity and safety.

Financial Condition

Your financial condition is shown from the following
exhibits. Exhibit B is a balance sheet from the books of the Eastern
Division. C is a balance sheet from the books of the Western Division.
D is a general balance sheet, condensed from both Divisions, embracing
the entire operations and transactions of the Company from its
organization to 30th June, 1861. E is a special statement from the
Treasurer's condensed cash statement, showing the receipts and
disbursements of the past year.

The liabilities and assets of the Company are as follows:

Assets

291 miles of road fixtures and equipment

$7,016,625.03

Stock and other property

297,730.46

Cash and cash assets

413,550.89

Total assets

$7,727,906.38

Liabilities

Capital Stock issued

$3,812,525.00

Funded debt

2,650,000.00

Floating debt

259,634.11

Total liabilities

$6,722,159.11

Difference

$1,005,747.27

This difference between your assets and liabilities will
be placed to the credit of profit and loss in closing up the account
of last year; less the suspense account, $12,548.74, which has been
sent aside to meet probable contingencies that may arise out of last
year's business that could not be adjusted and brought into the
present report. This will leave at the credit of your profit and loss
account $993,198.53, as shown by Exhibit F. This is the surplus
earnings of the road, that has gone into construction and other
property not now represented by either stock or debt. It is for you to
say what, if any, disposition shall be made of it.

Your liabilities are of such character that they have not
changed much since your last meeting. Such as have matured have been
paid. The remainder, owing on bills payable, is either not due, or has
not been called for. The individual dues, foreign roads, dividends and
unpaid coupons, will probably never be less than at present, as these
are constantly being added to and settled, never remaining the same
for any length of time. No fund, however, need be provided to meet
liabilities of this kind. In the purchase of a large amount of
machinery during the past year, a number of notes were given for it,
as the3 amount was large, and the machinery needed all about the same
time, it was desirable to scatter the payments of it through several
months. This accounts for the bills payable being larger now than at
your last report.

Taking the past year's net receipts,

$1,047,386.82

as a basis, and deducting --

Interest on Funded and Floating debt

$181,157.39

2 1/2 per cent. Sinking Fund on funded debt,

66,250.00

Eight per cent. dividend,

304,511.00

551,918.39

Would leave an annual
surplus of,

$495,468.43

after paying interest and a sinking fund of 2 1/2 per cent. on all
funded debt and an eight per cent. cash dividend to the Stockholders.

This surplus will be amply sufficient to continue your
past policy of replacing temporary structures on the road with
permanent works. This should be kept up until every structure and
building upon it has been rebuilt in the most solid and durable
manner; then you will have a permanent and reliable property, subject
to but few casualties.

By reference to the able report of your Chief Engineer
you will see that great improvement has been made in your permanent
road-way, water stations and buildings for the past year, and that
permanent stone culverts, iron bridges and solid embankments now
supply the place of several miles of temporary trestles heretofore
relied upon for the safety of your trains. The character and extent of
bridging built during the year, and those contemplated to be built
during the coming year, is fully set forth in said report, that you
may fully understand the condition of the road and its progress
towards perfection, and its necessary wants. The report is full of
interesting details, and does credit to its author, as will his
permanent works on the road, when examined. You are referred to it for
particulars in that department, believing it affords all information
necessary to fully understanding of every thing to which it should
refer.

For the details of the Transportation Department I must
refer you to the very interesting detailed report of your General
Superintendent, which its full and complete, and it affords the Board
pleasure to say exhibits a highly satisfactory condition of the
efficiency of that department. The details of receipts and working
expenses shows that the road has been worked with great economy and
efficiency, and that the machinery and rolling stock have been kept in
fine order, and now exhibit a degree of perfection and efficiency
rarely found on any road where business has been so near the full
capacity of its machinery. The list of locomotives and cars, together
with their capacity and character, will exhibit the full amount of
your rolling stock, believed now to be sufficient for the business of
the road, with the exception of freight cars, which your own ample
shops will furnish hereafter, of the best quality.

It would be idle to even speculate upon the future. With
civil war raging throughout the land, our ports blockaded, no human
foresight can tell what is to be the effect of such a state of things
upon yours or any other business in future. It may prostrate it
entirely, and you may not be able to pay expenses, or you may continue
to do a fair business as heretofore.

It depends upon the nature, extent, duration, success and
character of the war more than anything else. The seasons have never
been more propitious and the crops never better, as far as the season
has progressed; and with peace, prosperity, plenty and happiness would
reign throughout the land.

In conclusion, the Board can only assure the Stockholders
that their property was never in better condition; never have they had
to report fewer casualties; and while property of every kind has felt,
and felt severely, the present calamities befalling the country, in
depreciation in price, and while many of the most permanent and
valuable stocks in the country have fallen below one-half of their
value one year ago, yours will command cash at within five to ten per
cent. of the highest point it ever reached.

The Board of Directors feel that to the faithfulness,
care, ability, and unceasing watchfulness of your officers and
employees generally, and the personal interest they exhibit and feel
in the prosperity and character of the enterprise they, or most of
them, are so closely identified with, having been with it from its
infancy, has contributed in a great degree to its prosperity and
success; and it gives the Board great pleasure and satisfaction to be
able to bear this testimony to their high character and disinterested
devotion to your interests, which is worthy of your highest
commendation.